Janet L. Yellen faced intense and skeptical questions from several Republicans on the Senate Banking Committee, but nothing appeared to threaten her prospects for becoming the next chairman of the Federal Reserve.
While almost all the public and congressional attention is focused on the intensifying travails of the health care law, Wall Street is paying more attention to the Yellen confirmation hearing. If confirmed, she will be a dominant player in federal monetary and fiscal policy for at least the next four years — longer, probably, than the anxiety over Obamacare’s implementation.
Yellen testified that the economy has regained much of the ground lost during the recession but still needs an active hand from the Fed. The jobless rate of 7.3 percent remains too high. She made clear she would maintain the Fed’s extraordinary low interest-rate regime, begun by outgoing Chairman Ben S. Bernanke, until economic growth displays more sustained stability and unemployment comes down.
“Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” she said.
Several Republicans on the panel prodded Yellen, unsuccessfully, to indicate when she envisioned tapering down the Fed’s “quantitative easing” policies, in which the central bank has purchased billions worth of assets in an effort to spur economic growth and keep inflation low. As the current No. 2 at the Fed, she has advocated a 2 percent goal for inflation.
None of the senators explicitly announced they would vote against advancing her nomination to the floor, but several are expected to do so. Some conservatives doubt that quantitative easing has done much for the economy except to raise the threat of an inflationary spike once it’s over.
Beyond that, many Republicans suspect Yellen will be too assertive in leading the Fed as it finalizes regulations to implement and enforce provisions of the Dodd-Frank financial regulatory overhaul.
But every Democrat looks to support her, in committee and on the floor. Many prominent members of the caucus pushed hard for President Barack Obama to choose her instead of his initial preference, former Treasury Secretary Lawrence H. Summers.
Those 55 Democrats will be joined by a significant enough number of Republicans to overcome the inevitable filibuster. Thirty GOP senators opposed Bernanke’s confirmation to his current term, and it doesn't appear the roster of Yellen detractors will be bigger than that.
Two nationally prominent conservatives not on the committee — Rand Paul of Kentucky and Ted Cruz of Texas — have vowed to work to hold up a confirmation vote until the Senate votes on separate legislation permitting independent audits (by the Government Accountability Office) of the Fed’s monetary policy deliberations. The bill is doomed to failure because the GOP is divided on it.
Some Republicans will vote for Yellen, who would be the first woman to head the Fed, because they have essentially been given a pass by conservative groups such as the Club for Growth and Heritage Action, who have decided not to wage another fight with the pro-business wing of the GOP on this nomination
Nothing has been announced, but all signs point to the showdown votes before the end of the year. Bernanke’s term ends Jan. 31.